Could a long-time Florida consolidated group switch to separate returns after divesting business lines, changing markets and operations, and growing substantially?

Plain-English summary

The Florida Department of Revenue granted the affiliated group permission to stop filing consolidated Florida corporate income tax returns. Since making its original election, the retailer had divested multiple businesses, changed its markets and operating model, and grown substantially.

The taxpayer had filed consolidated Florida returns since a redacted year. Over time it discontinued or sold several areas of diversification, closed many locations of a former type, shifted away from earlier formats, moved services on-site, and added a new service that became important in most stores.

The business no longer resembled the group that made the election

The cited regulation allowed the Department to consider changes in law or circumstances, including operational changes that did not directly affect income-tax liability.

The Department found major changes in business lines, market segments, store operations, sales, Florida sales, payroll, Florida payroll, cost of goods sold, and inventory. The magnitude of those changes affected the prudence of continuing the original consolidated election.

The group would continue filing a federal consolidated return and expected lower Florida liability on separate returns. It represented that the request was unrelated to state tax planning and that it did not have a personal investment company holding intangible assets.

Permission came with four conditions

The group could begin separate filing in the redacted tax year only if:

1. It had no realized but unrecognized income or expense items; any later-recognized item had to be reported fully on the final consolidated Florida return.
2. The difference between separate-return liability and a pro forma consolidated return approximated the redacted represented amount.
3. The group did not become part of another Florida consolidated return before the redacted future year.
4. Changes in Florida taxable income resulted from economic or organizational differences, not state tax planning.

The Department also warned that failure to disclose a material fact could adversely affect the advisement.

What this means for you

Retail and operating groups with old elections

Document how the business changed since the original election: divestitures, closures, market shifts, store formats, service offerings, sales, payroll, and inventory.

Corporate tax departments

Prepare separate and pro forma consolidated calculations and identify every realized but unrecognized item before requesting consent.

Groups expecting a tax reduction

Lower separate-return liability did not prevent approval, but the Department required the difference to arise from genuine economic or organizational changes rather than state tax planning.

Common questions

Q: Did the Department approve separate filing?
A: Yes, beginning with the redacted tax year and subject to four conditions.

Q: What supported good cause?
A: Business-line divestitures, changed markets and store operations, new services, and substantial growth.

Q: Did the group continue federal consolidated filing?
A: Yes.

Q: Was state tax planning allowed to drive the change?
A: No. The approval expressly required economic or organizational reasons.

Q: Could incomplete disclosure affect the ruling?
A: Yes. The Department specifically warned about undisclosed material facts.

Citations and references

• Fla. Stat. § 220.131(1) — Florida consolidated-return election requirements
• Fla. Stat. § 220.131(3) — continued consolidated filing unless the director consents to separate returns
• Fla. Stat. § 220.15 — Florida taxable-income modifications referenced for future separate filing
• Fla. Admin. Code r. 12C-1.0131(3)(b) — application, good-cause factors, and conditions for discontinuing consolidated returns

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 05C1-002

Original ruling text

SUMMARY
QUESTION: May a consolidated group be granted permission to cease filing Florida consolidated corporate income
tax returns based upon changes in law or circumstances?
ANSWER - Based on Facts Below: The consolidated group was granted permission to cease filing Florida
consolidated corporate income tax returns based on the rule provisions which address changes in law or
circumstances.

March 4, 2005

Re: Technical Assistance Advisement 05C1-002
Corporate Income Tax
Request for Authority to Discontinue Consolidated Filing
Section 220.131, F.S., Consolidated Filing Election
XXX (hereinafter referred to as "Taxpayer")
Dear :
Your letter of XX, requests permission for the Taxpayer to discontinue filing consolidated returns for Florida corporate
income tax purposes. This response to your request constitutes a Technical Assistance Advisement under Chapter
12-11, Florida Administrative Code, and is issued to you under authority of s. 213.22, Florida Statutes.
FACTS SUPPLIED BY TAXPAYER
The Taxpayer was founded as a XXX in XX in XXX. Throughout the XX, the Taxpayer underwent phenomenal growth.
By XX, the total number of stores reached XX, including locations in Florida. During the XX, and up to the late XX, the
Taxpayer diversified and operated in the following markets:
XXX
From the late XX to the early XX, most of the Taxpayer's previous areas of diversification were discontinued. The
Taxpayer began to focus primarily on XXX. The Taxpayer's XXX were discontinued in XX. Starting in the late XX, the
Taxpayer began to close down many of its XXX. In the XX, about XX of its Florida XXX had XXX, while only about XX
of the Florida XXX still have XXX. The Taxpayer sold its XXX in XX and went from having XX stand alone XXX in XX
to not having any at all by XX. The Taxpayer sold all of its XXX operations in XX. The Taxpayer's XXX was
discontinued in XX. The Taxpayer's XXX affiliate was sold in XX. The Taxpayer terminated its XXX agreements in XX.
During the late XX through the XX, the Taxpayer began to move away from XXX and XXX to XXX locations. The

Taxpayer decided to purchase XXX in all of its markets. Currently, XX of all of the Taxpayer's stores are located away
from XXX. In addition, where the Taxpayer had just XXX in the late XX, it currently has XX stores with XXX.
During the XX, the Taxpayer disposed of all of its owned offsite XXX locations and began to offer XXX on-site. The
Taxpayer also installed XXX, which is now a key service offering in most of its stores. In XX, the Taxpayer had
approximately XXX in XXX, while in XX, the Taxpayer had approximately XXX in XXX sales.
The Taxpayer, along with its affiliated group, has reported its income on a consolidated basis for Florida corporate
income tax purposes since its initial election to consolidate in XX. Since XX, the Taxpayer has undergone many
changes and experienced substantial growth, some of which is described above. In addition, the table below details
the substantial growth of the Taxpayer since its initial election to consolidate in Florida.
Total Sales
Florida Sales
Total Payroll
Florida Payroll
Total Cost of Foods Sold
Total Inventory

• Fiscal year end XX was an eleven month year due to a change in accounting period. However, even if the XXX
  figures were increased to include an additional month, the figures clearly demonstrate substantial growth.
  The Taxpayer's Group will continue to file consolidated federal income tax returns. The Taxpayer estimates that its
  Florida tax liability for tax year ending XX will decrease from XX on a consolidated basis to XX on a separate return
  basis. The Taxpayer states that it does not have any tax planning activities related directly or indirectly to the Florida
  deconsolidation request. The Taxpayer also states that it does not have a personal investment company for purposes
  of holding its intangible assets.
  Although some data is provided on the future filing aspects of the Taxpayer and its affiliated group, the Department is
  unable to provide specific guidance on these other years, other than the general statutory provisions of Chapter 220,
  F.S., which require entities to report their share of federal taxable income modified by the provisions of s. 220.15, F.S.
  LEGAL AUTHORITY
  Section 220.131(1), F.S., states:
  (1) Notwithstanding any prior election made with respect to consolidated returns, and subject to subsection (5), for
  taxable years beginning on or after September 1, 1984, any corporation subject to tax under the code which
  corporation is the parent company of an affiliated group of corporations may elect, not later than the due date for filing
  its return for the taxable year, including any extensions thereof, to consolidate its taxable income with that of all other
  members of the group, regardless of whether such member is subject to tax under this code, and to return such
  consolidated taxable income hereunder, in which case all such other members must consent thereto in such manner

as the department may by rule prescribe, provided:
(a) Each member of the group consents to such filing by specific written authorization at the time the consolidated
return is filed;
(b) The affiliated group so filing under this code has filed a consolidated return for federal income tax purposes for the
same taxable year; and
(c) The affiliated group so filing under this code is composed of the identical component members as those which
have consolidated their taxable incomes in such federal return.
Section 220.131(3), F.S., states:
(3) The filing of a consolidated return for any taxable year shall require the filing of consolidated returns for all
subsequent taxable years so long as the filing taxpayers remain members of the affiliated group or, in the case of a
group having component members not subject to tax under this code, so long as a consolidated return is filed by such
group for federal income tax purposes, unless the director consents to the filing of separate returns.
Rule 12C-1.0131 (3)(b), F.A.C., states:
(b)1. Notwithstanding that a consolidated return is required for a taxable year, the Executive Director or the Executive
Director's designee is authorized to grant permission to a group to discontinue filing consolidated returns. Any such
application shall be made to... Technical Assistance and Dispute Resolution, P.O. Box 7443, Tallahassee, Florida
32314-7443, and shall be made not later than the 90th day before the due date for the filing of the consolidated return,
including extensions of time. Permission to revoke will be contingent upon an agreement between the taxpayer and
the Executive Director or the Executive Director's designee to the terms, conditions, and adjustment under which the
change will be effected.

2. The Executive Director or the Executive Director's designee is authorized to grant permission to a group to
   discontinue filing consolidated returns if the net result of all amendments to the Florida Income Tax Code or the
   Internal Revenue Code or regulations with effective dates commencing within the taxable year had a substantial
   adverse effect on the consolidated tax liability of a group for such year relative to what the aggregate tax liability would
   be if the members of the group filed separate returns for such year. Other factors which will be taken into account in
   determining whether good cause exists for granting permission to discontinue filing consolidated returns beginning
   with the taxable year include:
   a. Changes in law or circumstances, including changes which do not affect income tax liability;
   b. Changes in law which are first effective in the taxable year and which result in a substantial reduction in the
   consolidated net operating loss for such year relative to what the aggregate net operating losses would be if the
   members of the group filed separate returns for such year; and
   c. Changes in the Florida Income Tax Code or the Internal Revenue Code or regulations which are effective prior to

the taxable year but which first have a substantial adverse effect on the filing of a consolidated return relative to the
filing of separate returns by members of the group in such year.

3. Permission to revoke may be contingent upon an agreement between the taxpayer and the Executive Director or
   the Executive Director's designee to the terms, conditions, and adjustment under which the change will be effected.
   ISSUE PRESENTED
   Whether the Taxpayer should be granted permission to cease filing consolidated Florida corporate income tax
   returns?
   DISCUSSION AND ANALYSIS
   The Taxpayer relies upon Rule 12C-1.031(3)(b)2.a., F.A.C., which permits the Executive Director to consider
   "[c]hanges in law or circumstances, including changes which do not affect income tax liability." The Taxpayer
   contends that the circumstances and business of the affiliated group has changed significantly since it made its
   consolidated return election in XX.
   The information provided by the Taxpayer shows substantial changes in the consolidated group since XX, when the
   Taxpayer first elected Florida consolidated reporting. The Taxpayer has divested from several lines of business that it
   previously provided in XX. Since XX, there have been changes in the market segments that the Taxpayer services. In
   order to thrive, the Taxpayer has made numerous changes in the way it operates and generates its business. In
   addition, the Taxpayer, including the Taxpayer's operations in Florida, has grown substantially. As a result, the
   affiliated group has undergone changes, the magnitude of which affect the prudence of continuing to file on a
   consolidated basis for Florida corporate income tax purposes.
   CONCLUSION
   Based on the following four conditions, permission is granted for the Taxpayer to discontinue filing consolidated
   corporate income tax returns beginning with tax year ending XX:
4. That Taxpayer has no realized but unrecognized income or expense items that may be recognized at a later date. If
   the Taxpayer should be required to recognize any such items at a later date, they should be reported in full on the last
   Florida consolidated return;
5. That the difference in tax liability for the tax year ended XX, between the separate tax returns filed and a pro forma
   consolidated return for the same period is approximately XX;
6. That the Taxpayer Group does not become part of a consolidated Florida corporate income tax return prior to the
   tax year ending XX.
7. Changes in Florida taxable income are the result of economic or organizational differences and are not the result of
   state tax planning.

As a reminder, Technical Assistance Advisements are based on full disclosure of all relevant facts, and the lack of
disclosure of a material fact by the Taxpayer may adversely effect the response provided in this Technical Assistance
Advisement.
This response constitutes a Technical Assistance Advisement under s. 213.22, F.S., which is binding on the
Department only under the facts and circumstances described in the request for this advice as specified in s. 213.22,
F.S. Our response is based on those facts and specific situation summarized above. You are advised that subsequent
statutory or administrative rule changes or judicial interpretations of the statutes or rules upon this advice is based
may subject future transactions to a different treatment than expressed in this response.
You are further advised that this response, your request and related back-up documents are public records under
Chapter 119, F.S., and are subject to disclosure to the public under the conditions of s. 213.22, F.S. Confidential
information must be deleted before public disclosure. In an effort to protect confidentiality, we request that you provide
the undersigned with an edited copy of your request for Technical Assistance Advisement, the backup material, and
this response, deleting names, addresses and any other details which might lead to the identification of the Taxpayer.
Your response should be received by the Department within 15 days of the date of this letter.
Sincerely,
Robert DuCasse
Technical Assistance and Dispute Resolution
RCD/rd
Control No.: 12449